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1. wallets

the centre of gravity in web3
primary way users interact directly with blockchain networks.
allow users to interact with smart contracts and tokens.
wallets store a user’s data and private keys and prove that the user owns and controls their digital assets.
“wallet” is a misleading term. it’s really “an account everywhere”
you can see this in the design pattern:
web1 → create an account for every service
web2 → use a centralized account to access services
web3 → YOU ARE THE ACCOUNT
like a physical wallet (which holds IDs, photos, money, credit cards, loyalty cards, grocery list, random stuff)
it can see more about you than any one centralized service can, because it’s yours.
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understanding web3 wallets and keys using a real world example: Property

what
house
web3
1
asset
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it has a location, address, square footage, bedrooms, bathrooms, etc.
NFT has an address and unique token reference number.
2
access
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a key lets you enter a house and use it.
wallet lets holder interact with NFT (if it has functionality).
3
control
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deed recognize legal owner, who can sell, extend or change the house as they choose.
owner is the only one who can sell (or borrow against) the NFT (which is considered property in UK law).
There are no rows in this table
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in web3, a wallet is how you access and control assets

web1 → on the web, you access your data on a server. the server controls it.
web2 → on social networks, you access your data on a server. the server at the intermediary can control it.
web3 → conceptually, the user controls their data and assets. the data may continue to live on other servers.
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for users

an account everywhere
if you hit a paywall on some news website you need to enter your personal information and sign up to access the content.
in web3, you connect your wallet and approve the contract.
digital ownership
a physical DVD works regardless if the company that made it no longer exists.
if a streaming service revokes access or closes, your film won’t play.
web3 wallets make assets behave more like they do in the physical world.

for businesses and entrepreneurs

better data
in web2, the platforms that built the largest data moats won.
but no single platform has more data about a user than they do themselves - not the government, Meta, Google, etc.
web3 means users can let algorithms run on all of their data, creating new competitive opportunities.
a CRM for assets
the wallet that owns an NFT is recorded publicly for all to see.
imagine being able to directly interact with everyone who bought a product from your brand.
or better yet - a competitor’s brand.
imagine being able to engage with your NFT-holders simply by knowing which wallets hold the corresponding assets.

2. tokens

tokens are the digital representation of value.
be it monetary or rights, natively-digital or from the “real world”.
they are stored in the blockchain networks that record the wallet address that “owns” the token.
a token may have behaviors defined by a smart contract

fungible tokens

can be exchanged one to one
native-network token
trading 1 BTC for another leaves both parties with 1 BTC minus fees.
contract defined token
trading 1 BTC for another leaves both parties equal.
example use cases
use of a platform (e.g. DeFi exchange)
discounts and loyalty
community access
game currencies
governance and voting
sports club access

non-fungible tokens (NFTs)

have individual values and can’t be traded 1 to 1 in most cases.
example use cases
digital collectibles
content
in-game assets
wrapping specific DeFi strategies for monetization
access credentials to digital environments (metaverses)

3. smart contracts

the programs that run web3
computer programs that run on blockchain networks to determine the behavior of tokens.
the programming language and environment varies between blockchain networks.

using NFTs as a case study to understand how smart contracts mint web3 tokens

creating an NFT collection
all of this happens automatically. no matter how many times the NFT is sold, and no matter on which marketplace,
because moving the NFT always requires interacting with the smart contract and is enforced by the blockchain network.
create
developer writes software to create a collection of 100 NFTs and deploys it to their chosen blockchain network.
they include code to receive a 10% cut of any future sales.
mint
buyer chooses to “buy” the NFT for $100, their web3 wallet interacts with the smart contract.
code execution
if the wallet has enough funds to buy (mint) the NFT,
smart contract asks the blockchain network to assign one of the 100 unique token references to the buying wallet address.
validation
blockchain network performs computation, network comes to consensus.
buyer has moved $100 to the NFT creator and in return has the NFT.
smart contracts enable automated royalties payments from web3 token sales
if NFT is re-sold, no matter where, NFT creator collects royalties
this wouldn’t work for most assets and secondary sales today.
when you sell your car, the car manufacturer you bought it from gets no benefit.
buy
NFT holder wants to sell their NFT from their collection and agrees to sell for $1,000.
transaction is sent to the smart contract.
asset swap calculated
smart contract calculates that seller should get 90% ($900) and NFT creator should get 10% ($100).
code execution
smart contract asks the blockchain network to assign the NFT to the buying wallet address,
sends $900 to the seller and $100 to the creator.
validation
blockchain network performs computation, then consensus, buyer has NFT, seller $900 and NFT creator $100.

for users

shared ownership
while tokens do not imply legal ownership of a company, platform or entity,
they are designed to allow users to participate in the governance of an application or service.
get rewarded
allow early adopters to benefit from a token’s price appreciation as more users enter the network.
new ways to earn
new models of contributing or engaging with products may reward users with tokens (e.g. ‘learn-to-earn’ or ‘contribute-to-earn’).
users can monetize their contribution to a network, community or marketplace.

for businesses and entrepreneurs

new marketing approaches
users are more than just consumers. they can help influence the product with their usage and votes.
new competitive moats
engaged community will do the marketing via word of mouth
because they have more to gain than people using the same services without ownership.
remix the competitor
a project called SushiSwap was able to launch by almost entirely copying the open source code of its competitor Uniswap.
when it launched, it gave users more ownership of the platform, and this allowed it to gain early traction.

4. blockchain networks

the transactional data infrastructure layer of web3
decentralized network of computers running the blockchain software and storing its transactional data.
these computers are incentivized to validate the transactions with the use of digital assets that are native to each blockchain
different “blockchain networks” have different technical solutions for scaling.
not all blockchains follow the “chain of blocks” datastructure.

often called the “web3 stack”

web3 has an architecture and blockchain networks are just one piece.
often considered the base for moving and storing value.
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(example of) how blockchain networks operate

broadcast
wallet broadcasts a message to the network about an imminent transaction it wants to make.
work
miners or nodes solve a computational problem for the right to ‘confirm’ the transaction and add it to the block.
code execution
completion of “proof” by blockchain network gives node the right to execute the smart contract (or equivalent) code.
consensus
eventually every ‘full node’ in the network will show the same transactions.
data stored
miners and full nodes then store the outputs, which can be viewed by anyone, globally, 24/7 to maintain a permanent record.

a different kind of construct

global & 24/7
not region-locked, operate and transact 24/7, unlike key financial institutions and exchanges that keep business hours.
transparent
any user can view a real-time copy of the entire state of the blockchain network.
this includes which wallets may hold a particular token or NFT.
anti-fragile
at current market cap, hacking Bitcoin is a $700B prize for hackers.
blockchain networks become stronger as they are attacked.

for users

my data follows me
imagine if a content creator could take all of their content, likes and comments from Youtube or TikTok to some other platform. impossible in web2, possible in web3.
now imagine this for your banking transaction history.
new investment asset class
consumers can back their favorite projects earlier than traditional venture-backed companies.
for example, Coinbase went from founding to IPO in nine years. by this point most of the value had already been created.

for businesses and entrepreneurs

customer acquisition
consumers and businesses are increasingly attracted to cryptoassets and DeFi yield.
fintech companies add crypto to attract new users.
new products & revenue
‘to-earn’ models like play-to-earn or contribute-to-earn create new ways to monetize engagement.
DeFi and NFTs give fintechs and consumer brands new products to sell to consumers, and new ways to deepen engagement.
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